All Bulgarian eurosceptics should relax a little. At least that's the advice coming from Croatia – the last country to adopt the single European currency in 2023, writes the European publication „Politico“ in an analysis today, BTA reported.
Thousands of Bulgarians took to the streets after the European Commission approved the country's entry into the monetary union next year, fearing that their lives will become significantly more expensive, the article says. While it is true that inflation in Croatia is slightly higher since joining the eurozone than before, experts say that this also reflects positive economic trends. Other economic indicators suggest that the transition is largely a success story and a model for Bulgaria to follow.
Croatia's economic growth last year was 3.8 percent - among the highest in the EU, driven by a strong tourism sector that has remained resilient despite industrial problems in Europe. Unemployment is at its lowest level since 1996, and EU funds are still flowing in. Ratings agency „Fitch“ (Fitch) expects Croatia to use all 4.5 billion euros from the Recovery and Resilience Facility by the middle of next year. Perhaps most importantly, wages have increased by more than 30 percent since Croatians changed their kuna for the euro.
Croatia and Bulgaria, two of the EU’s poorest members, simultaneously entered the eurozone waiting room in mid-2020 after inflation had been kept at or below the eurozone level for most of the previous decade. But a series of shocks, starting with the pandemic, changed everything. Inflation has risen sharply, peaking at over 13 percent in Croatia and almost 19 percent in Bulgaria, making consumers in both countries extremely sensitive to the risk of further price increases.
Although inflation in Croatia remains among the highest in the EU, analysts say the reasons are largely unrelated to the introduction of the euro. “Croatia is the only country that entered the eurozone under strong inflationary pressures”, says Petar Soric of the Faculty of Economics in Zagreb, noting that inflation from 2022 to 2023 was the highest since the 1990s, when the former Yugoslavia collapsed. In such conditions, says Soric, it was difficult for consumers to determine what was driving inflation, leading to the perception that it was much higher than official figures.
However, the fear of price increases is partly justified, believes Fran Galetic, also from the Faculty of Economics, recalling the experience of neighboring Slovenia, where prices rose by 9 percent in the 18 months after the introduction of the euro in 2007.
“Although official policy sent reassuring messages, many remember what it was like“, said Galetic.
To reassure the public, the Croatian government obliged stores to display prices in both currencies for four months before the introduction of the euro and a year after.
This did not stop merchants who wanted to take advantage of the situation from pressuring their customers. Many retailers in Croatia raised prices before the dual display obligation began, which allowed them to later claim that they did not raise them during the dual display period, Galetic said. Consumer prices rose significantly faster in the 18 months surrounding the euro’s introduction than in the rest of the eurozone.
Bulgaria will need to learn from Croatia’s experience, notes "Politico".
The discontent remains: Croatians boycotted supermarkets earlier this year over price increases, forcing the government to extend price controls on basic food products that it had introduced through 2022 and 2023.
“The government presented these measures as a response to the energy crisis, but since they coincided with the euro changeover, consumers probably also saw them as protection against euro inflation,“ says Soric.
He adds that Bulgaria is in a better position today because it has “a much calmer outlook for inflation than we had in 2023, in this sense it will be much easier to monitor prices and punish unfair practices“.
Despite everything, experts agree that the transition to the single European currency brings many more benefits than disadvantages.
Ana Šabić, director of the “European Affairs“ department at the Croatian National Bank, called Croatia's adoption of the euro “a complete success story“. Croatia has said goodbye to currency conversion costs, which is a major advantage for the economy and tourists, and the country's credit risk premium compared to Germany has almost disappeared.
The Croatian National Bank estimates that the country saves around 160 million euros a year on exchange and transaction costs alone.
“Croatia has felt all the expected benefits of eurozone membership despite the fact that we joined in very difficult times,“ Šabić said. However, with a delicate warning to a country that has experienced government crises and scandals over the years, Šabić stressed that “detailed and timely planning and a clear division of tasks and responsibilities between the institutions involved are crucial“.